The industry reacts to rising house prices and easing costs

Having two pieces of good news on the same day is suspicious. In this climate, it feels almost too good to be true. Nevertheless, figures don’t lie.

Costs have slowed, and house prices have risen. Last week, it was revealed that our annual inflation rate fell to 6.8% in July, down from 7.9% in June. This was one of the biggest drops we’ve seen, driven largely by easing energy prices.

At the same time, the latest ONS data showed the average UK house price rose by 1.7% in the year to June. In England, house prices rose to £306,000, while they jumped to £213,000 in Wales. The fabled price crash we were all warned about is looking increasingly unlikely.

But, of course, we shouldn’t get ahead of ourselves. Any improvement should be welcomed, but we’re not entirely out of the woods yet. Paresh Raja, our very own CEO, urged for caution.

“Another step in the right direction, with today’s CPI drop following on from the smaller-than-expected base rate hike at the start of the month,” he said.

“But it might be a case of two steps forward, one step back; all the talk this week has been that we are in for a shock rise in inflation when next month’s data comes out on 20th September — given the Bank of England’s next interest rate decision follows the next day (21st September) that will likely prove a hugely important 48 hours.

“For now, we should allow some positivity to permeate back into the property and lending markets, but lenders must double down on a proactive approach to supporting brokers and borrowers who will be feeling the effects of high inflation and consistent base rate hikes.”

Mr. Raja noted lenders will have a crucial role to play in helping the market get back to a healthier state. But what do those outside of the lending scene believe?

Source: The Guardian, ONS

“We’re not out of the woods yet”

Juliet Baboolal, partner at Seddons, noted rising prices could make things difficult for both borrowers and lenders alike. Even with inflation slowing.

“There is no doubt that even with the slowing down of inflation, high house prices create a challenging environment for the lending market, potentially leading to reduced loan volume, increased interest rates, and tighter lending criteria,” she said.

“While slow inflation may result in lower interest rates, high house prices can still make it challenging for borrowers to afford the down payment and monthly mortgage payments.

“This can dampen the demand for loans and slow down lending activity.”

Ms. Baboolal did foresee demand rising for certain products, however. There could be a shift towards tracker rates over fixed-rate mortgages, while there may also be increased demand for home equity loans.

Although, she warned our current situation could exacerbate the risks of a bubble in the market.

“High house prices in an environment of slow inflation can raise concerns about the possibility of an asset price bubble. Lenders may become more cautious and conservative in their lending practices to mitigate the risk of potential defaults if a housing market correction occurs.”

Hannah Duncan, a freelance writer and journalist who regularly covers the property market, shared similar concerns.

“While the 1.7% rise will surely be welcome news to homeowners, we’re not out of the woods yet,” she said.

“First-time buyers are still drowning in impossibly high rents, historically low wages, and mammoth mortgage rates, making it devastatingly hard to save for a deposit.

“A 2023 study from Homeowners Alliance found an eye-watering 61% of hopeful buyers now need to ask their parents for help to get a foot on the ladder, putting those with wealthy families at a huge advantage.

“Without intervention, the current rental and housing market is likely to further widen the wealth gap for generations to come.”

Ms. Duncan noted that if inflation continues to slow, the Bank of England may decide to relax interest rates when the Monetary Policy Committee meets in September. This could in turn lead to more affordable mortgage rates, and boosted activity in the market.

“However, with so many tenants forced to sign up for high rents and three-year contracts, renters may not feel the benefits”.

“A more tempered increase in house prices aligns with the overarching goal of ensuring sustainable and affordable housing for all”

Renters may indeed be feeling the pinch. Across the UK, average rents are sitting at £1,231 per month, having risen by 9.3% in a year. In London, rental costs rise to £2,567, with tenants in Inner London spending just over £3,000.

But, Akhil Mair, managing director at Our Mortgage Broker, argued if we keep on our current track, we may be able to create a more equitable market for everyone.

“As a dedicated mortgage brokerage in the UK, we closely monitor the trends shaping the housing market and the broader economic landscape,” he said.

“The recent data indicating a modest 1.7% increase in UK house prices over the last 12 months until June showcases a notable slowdown compared to the revised 1.8% growth in May.

“While this deceleration might raise concerns for some, it also signifies a potential stabilisation in a market that has witnessed rapid price appreciation in recent years.”

These results, coupled with slowing inflation, means we’re seeing a gradual moderation in the economy, he explained. By pushing the purchasing power of homebuyers and consumers upwards, general sentiment could be improved.

“This juxtaposition of trends prompts us to view the current situation with a balanced perspective.

“A more tempered increase in house prices aligns with the overarching goal of ensuring sustainable and affordable housing for all.

“While such a shift might influence short-term dynamics, it contributes to fostering a healthier and more inclusive property market in the long run.”

Source: i news

“Inflation will be a tough nut to crack”

Indeed, industry insiders are already seeing optimistic shifts in the market. Stephen Still, regional director and head of surveying at Stirling Ackroyd Group, has seen firsthand how positive changes in prices may be filling investors with confidence.

“The latest UK house price stats reflect what we are seeing internally here at Stirling Ackroyd Surveyors,” he said.

“Nominal prices are broadly holding up across our main focus areas. Transaction volumes are certainly down on what we would expect, but the market is still very active with investors now seeing some real value-add potential in spite of high interest rates.”

Mr. Still also welcomed the recent inflation figures, but cautioned that core inflation “still remains sticky”. As such, additional base rate hikes may be needed, and there could be a few more bumps ahead for the UK property market.

However, Sean Bowling, director and advisor at SBL Financial, believes there could be some leeway on the horizon.

“With inflation reducing again to 6.8%, the mechanisms the Bank of England are using are working to some extent but it’s slow going and not a quick fix – they want 2%,” he said.

“Inflation will be a tough nut to crack with outside factors and influences affecting it. That being said, the industry has been reacting already, and we have seen some lenders starting to reduce products slightly in advance of the news, offer more 2-year deals, and variable discounted options for the more adventurous.”

Mr. Bowling believes we’re still heading for a 6% base rate, but that’ll be the limit.

“Things will then start easing off, with inflation reducing further, and calm returning to markets, and stability to swap rates.

“So, I think there’s a bit more pain ahead, but sunshine is showing in the distance where real reductions from lenders will return.

“So, the figures will be good news for many that better times are on the horizon, but the real cost reduction benefit will take a little bit longer.”

As is the case with most investments, those who can hold out over the long-term are more likely to benefit. Hopefully, we may only have to hold out a little bit longer.